Reuters logo
Fitch Affirms NN Group's IDR at 'A'; Outlook Stable
October 23, 2017 / 4:18 PM / a month ago

Fitch Affirms NN Group's IDR at 'A'; Outlook Stable

(The following statement was released by the rating agency) LONDON, October 23 (Fitch) Fitch Ratings has affirmed NN Group N.V.'s (NN) core life insurance subsidiary Nationale-Nederlanden Levensverzekeringen Maatschappij N.V.'s Insurer Financial Strength (IFS) rating of 'A+' (Strong). The agency has also affirmed NN's Long-Term Issuer Default Rating (IDR) of 'A'. The Outlooks are Stable. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS The affirmation is driven by NN's very strong capitalisation and leverage and business profile. Fitch assesses NN's profitability, although stable, as a rating weakness. NN's capital position remains a key rating strength despite the group's key metrics weakening following the acquisition of Delta Lloyd N.V. (Delta Lloyd) on 7 April 2017. The group's capital position continues to compare favourably to most European peers on both a Prism factor-based model (Prism FBM) and a Solvency II (S2) basis. Fitch expects the group's Prism FBM score, including Delta Lloyd, to fall to 'Very Strong' in 2017 from 'Extremely Strong' at end-2016. NN's consolidated S2 ratio fell to 196% at end-1H17 from 241% at end-2016. NN's financial leverage remains commensurate with similarly rated peers, and we expect it to improve as a consequence of capital generation and future debt maturities. NN's financial leverage ratio increased to 30% at end-1H17 from 22% at end-2016, driven by an increase in debt financing related to the acquisition of Delta Lloyd and the consolidation of Delta Lloyd's existing debt. The Delta Lloyd acquisition is favourable to our assessment of NN's business profile, as we believe the transaction further improves NN's strong market position in the Dutch insurance market across various lines. The acquisition is also consistent with NN's strategy of being an insurance leader in the Dutch market. For example, the transaction firmly establishes the group as a top-two player in the competitive Dutch non-life insurance segment. However, both NN and Delta Lloyd have significant exposure to the challenging Dutch life sector. Fitch expects NN to realise significant capital synergies and cost efficiencies out of the acquisition of Delta Lloyd, given the considerable overlap between the businesses in the Netherlands. There are execution risks in integrating the acquired business and realising the planned synergies. However, Fitch believes NN has the necessary expertise and track record, particularly in expense management, to execute the transaction successfully. NN's profitability is strong with a Fitch- calculated net income return on equity (ROE) of 6% (2015: 8%), which we expect to remain stable in the 5%-8% range. However, ROE remains below our criteria median of 9% for insurers rated in the 'A' category. NN's profitability is weighed down by historically low bond yields, consistent with most of its similarly rated peers. The successful integration of Delta Lloyd (2016 Fitch-calculated net income ROE: 9%) is a key risk in the medium term, but we expect the group to closely manage integration risk, thereby enabling its earnings to benefit from the realisation of synergies. NN plans annual cost synergies of approximately EUR150 million by 2020 from the Delta Lloyd acquisition, in addition to the standalone NN and Delta Lloyd cost savings targets. NN's investment exposure is conservative and supported by a risky assets to equity ratio of 38% at end-2016. General account assets, where NN bears investment risk, are predominantly invested in fixed-income securities and mortgages, largely rated 'A' or higher, with adequate diversification by region and issuer type. We view NN's variable annuity (VA) and guaranteed pension risks as manageable, particularly in light of the group's capital strength, its hedging programme to mitigate financial market risks on these businesses, and a rapid run-off projection of the Japan closed block VA book. However, NN does not separately hedge market risks related to performance guarantees on some unit linked policies. NN has applied its own accounting principles and key reserving assumptions to all Delta Lloyd entities. Fitch believes that NN's overall non-life reserving practices are prudent. However, recent reserve run-off results have been unfavourable, driven by a EUR40 million reserve strengthening (about 1% of end-2016 gross reserves) in 1H17 for bodily injury claims related to NN's property & casualty business. NN is a leading player and household name in the Netherlands, with its footprint in the rest of Europe and Japan adding a degree of diversification. The group generated 59% of its premium outside the Netherlands at end-2016. NN's European insurance business, which excludes its Dutch operations, contributed 16% to the group's pre-tax operating result in 2016. NN Life Japan is a top-three player in corporate-owned life insurance products, and contributed 13% to the 2016 pre-tax result. RATING SENSITIVITIES The ratings could be upgraded if, on a sustained basis, financial leverage improves to below 24% and net income ROE rises to above 8%, while NN's Prism FBM Score remains at least 'Very Strong'. Conversely, the ratings could be downgraded if, for a sustained period, financial leverage increases to above 32% or net income ROE falls to below 5%. The ratings could also be downgraded if capitalisation weakens significantly, as measured by a fall in the Prism FBM score to below 'Very Strong'. FULL LIST OF RATING ACTIONS Nationale-Nederlanden Levensverzekeringen Maatschappij N.V. --IFS rating affirmed at 'A+'; Outlook Stable NN Group N.V. --Long-Term IDR affirmed at 'A'; Outlook Stable --Senior debt (XS1623355374) affirmed at 'A-' --Senior debt (XS1623355457) affirmed at 'A-' --Senior debt (XS1550988569) affirmed at 'A-' --Senior debt (XS1204254715) affirmed at 'A-' --Subordinated (XS1550988643) affirmed at 'BBB' --Subordinated (XS1028950290) affirmed at 'BBB' --Subordinated (XS1054522922) affirmed at 'BBB' Contact: Primary Analyst Willem Loots Senior Director +44 20 3530 1808 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Harish Gohil Managing Director +44 20 3530 1257 Committee Chairperson Federico Faccio Senior Director +44 20 3530 1394 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below